Why Axie Infinity’s NFT partnership could be in trouble

• Sky Mavis, the creator of Axie Infinity, announced its partnership with the CyberKongz NFT project.
• The ecosystem was marked by a severe decline in the last year. 

On 25 July, Sky Mavis, the company behind popular play-to-earn game Axie Infinity [AXS], announced its newly formed partnership with the CyberKongz NFT project to introduce a profile picture collection (PFP) to the Ronin blockchain [RON] for the first time.

According to the press release, Sky Mavin noted that CyberKongz’s Genkai NFT collection would hold its mint on 27 July at the Mavis Market, an NFT marketplace on the Ronin blockchain. 

The decision to bring PFP NFTs to the Ronin blockchain for the first time ever comes at a period decidedly marked by a severe decline in PFP NFTs and the Axie P2E game. 

Although the launch of Genkai in Axie Infinity has received positive feedback and acceptance from the community, a closer examination of Axie Infinity’s historical decline and the overall state of the NFT market raises questions about what can be expected after Genkai’s mint.

2018 – 2021: The years of plenty

Sky Mavis commenced development on Axie Infinity in 2018, but the play-to-earn project only became popular in 2020, when many users, mainly from emerging markets, got onboarded. 

As described in its whitepaper,

“Axie Infinity is a Pokémon-inspired universe where anyone can earn tokens through skilled gameplay and contributions to the ecosystem. Players can battle, collect, raise, and build a land-based kingdom for their pets.”

Three major resources power Axie Infinity’s economy: the Axies, its in-game cryptocurrency, Smooth Love Potion (SLP), and the soon-to-be governance token Axie Infinity Shards [AXS].

In February 2021, Axie Infinity launched its Ethereum [ETH] sidechain Ronin Bridge, contributing to the astronomical growth that the play-to-earn gaming platform enjoyed that year.

Upon the launch of Ronin, gamers on Axie Infinity could migrate their Axies onto the bridge for a specified period. Enabling this made gamers more inclined to hold and trade in-game assets, leading to the significant growth in the value of the SLP and AXS tokens shortly after. 

The meteoric rise in Axie’s usage toward the end of 2020, aided by the launch of Ronin Bridge in February 2021, caused it to be ranked as the 5th video game organization in the world by market capitalization ahead of older gaming companies such as Zynga and Ubisoft. 

Source: Messari

In a newsletter published by the game in October 2021, Axie Infinity confirmed that its daily active users had crossed two million, rising 300% between July and October. 

As the count of gamers grew, protocol revenue rallied as well. Data from Token Terminal showed that it ranked ahead of Ethereum as the dApp with the highest cumulative revenue for that month.

Source: Token Terminal

2022 and beyond: All’s well that ends well

The unprecedented rally in the count of daily active users and revenue growth was short-lived, as the general bearishness that plagued 2022 led to a severe decline in interest in Axie Infinity. 

Axie’s trouble started when it slashed SLP rewards on 3 February 2022. Unfortunately, this made gamers feel unincentivized to remain on the platform, and the count of daily active users immediately began to decline.

According to Axie’s Growth Data, this culminated in an 18% fall in the count of daily in-game battlers by the end of February. As of 8 August, of the same year, Axie recorded 253,359 daily in-game battlers. This represented a 90% decline from the 2,718,810 everyday gamers as of November 2021. 

When Ronin was hacked on 23 March 2022, several gamers exited the play-to-earn platform, and many dumped their Axies. This culminated in a fall in the number of Axie holders. 

As the count of Axie holders fell, the trading volume for Axie NFTs and the virtual land plots also declined. According to data from CryptoSlam, NFTs trade volume on Axie Infinity has fallen by 96% since Ronin was hacked in March. For context, Axie’s daily sales volume on the day of the Ronin hack was $1.25 million. As of 25 July, this was less than $50,000.

Source: CryptoSlam

While the Ronin Bridge was re-opened a few months later, NFT sales volume on Axie continues to plummet. Here is a representation of the decline:

Source: CryptoSlam

As Axie holder and gamer counts fell on the protocol, the game experienced a decline in protocol revenue. Last year, user fees and revenue have both declined by 100%, per data from Token Terminal.

Source: Token Terminal

AXS is deep underwater

At the time of writing, AXS exchanged hands at $5.96. Data from CoinMarketCap revealed that the token’s price has declined by more than 60% in the last year. As the altcoin grappled with a price decline, top addresses holding the token have gradually let go of the AXS in the last year.

According to data from Santiment, the percentage of the token’s total supply held by its top addresses has trended downwards in the last 12 months. Now sitting at 81.6%, this has dropped by 6% in the last year.

Source: Santiment

Finally, on leading exchanges Binance and dYdX, most open positions opened in the last year have been bets against AXS price. As its price falls, short traders are incentivized to place more and bigger bets. 

Source: Santiment